Pay what you want pricing (PWYWP)- How does it work?
Pay what you want pricing means a business or an individual offers a product upfront to the customers and then it is left up to the customer what the customer wants to pay or even if the customer wants to pay.
The pay what you want pricing model works well on two levels. One is that free products will attract many customers and as a result, you would be able to market your products at no cost.
- Precautionary tale
There are also many cautionary tales associated with the pay what you want pricing strategy. You should probably be careful what kind of business you are in to even apply the Pay what you want a strategy.
If you have an e-book, a pay what you want pricing strategy is probably a good idea. But, if you are a restaurant, which operates on very thin margins, it is not a very good idea.
- How does the pay what you want pricing works?
The pay what you want pricing is divided into three main types. Each has its own advantages and disadvantages, and its own working method. The three pay what you want pricing models are shown in figure 1 below:
Figure 1: Pay what you want pricing types
The three types of pay what you want pricing are Ex Post pricing, charity elements and repeated transaction. Each type suits a particular type of business. The companies should make sure what type of pricing model suits them the best.
3.1 Ex Post pricing
Ex-ante means, ‘before the event’, and this is the usual sale model adopted by companies. For example, when you are buying something online, first you pay for it, and when you receive it.
The ex-post pricing means that first, the customer gets the product, and then he pays for it, of course in the pay what you want pricing if the customer even wants to pay for it. So, you would receive the money after the customer receives the product.
3.2 Charity elements
The pricing element is by far the most widely used and famous pay what you want pricing strategy. You must have seen it being used somewhere. The usual line is, ‘If you buy one of our products, a portion of it will be donated to the charity’.
This pays what you want pricing strategy is used to appeal to people’s empathy. This helps increase the sale of products as people feel good when they are buying that particular product. So, this strategy uses emotions to sell to people.
3.3 Repeated transactions
This pays what you want strategy should be used for businesses who want to attract repeat customers. This is also called fair pay. This works by data on transactions of a single customer.
Then the seller can use this data to make the decision of whether to increase product offering to that customer. This is basically an incentivization scheme. The customer knows that he/ she will get better offers in the future if he/she sticks with the fair pay system.
Pay what you want pricing is a high risk and high reward strategy. The company should do its research and find out whether this is the right strategy for it.