Pricing Experiments You Might Not Know, But Can Learn From
I remember a great discussion my class had in our high school Econ class about why "pay what you want" fails so often:
The basic working theory of an economic exchange between parties is that the exchange happens because both parties feel like they are getting more value post-exchange than pre-exchange. I agree to pay you $5 for a sandwich because I have decided that the sandwich is more valuable to me (in my hungry state) than this $5 bill (even if only marginally so) and you have decided that $5 in the register is better than keeping the bread, cheese and meat in the kitchen. It works. If the sandwich were $20, I might not make the same value judgment. Possibly even if it were $7.
When you throw "pay what you want" into the transaction, in theory, you're actually breaking that structure. I'm no longer getting MORE value from the sandwich than from my money - by definition, I'm getting exactly the same value.
So even though the consumer is deciding on pricing, that subtle feeling of "getting a deal" goes away and consumers on the whole actually feel less intrinsically satisfied with the purchase.
1. I tried "pay what you want" while doing pro photography gig and it didn't work well at all - people got confused, people didn't know what to pay and just left without buying anything.
Bottom line #1: people need to be told what to do, including how much money they need to give.
2. When selling subscriptions (I'm the author of MemberWing - wordpress plugin allowing bloggers to sell flexible subscription packages to sell access to premium content) it is wiser to charge flat fee yearly access instead of montlhy access. Why? Because what people are willing to pay today is way different from what people are willing to pay tomorrow. Why yearly? Impulse buyers! When person is excited - he is willing to buy more and pay more.
Bottom line #2: Monetize positive emotion! It may not last long :)
Previous discussion:
Is there any data on offering a lower first-months or first-years price on a subscription deal? (i.e. "Pay $2.99 for your first month!" with "$7.99 a month thereafter" in smaller print)
Awesome article. I'm glad someone has resposted it here.
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