Wednesday, September 30, 2009

Letting the Fans Decide What to Pay You

Derek Sivers, founder of CD Baby, posted an article on his blog that is getting lots of comments.
Say to the audience, “It's really important to us that you have our CD. We worked so hard on it and are so proud of it, that we want you to have it, no matter what. Pay what you want, but even if you have no money, please take one tonight.” "Emphasize meaning over price = More paid sales," Derek Sivers, 9/21/09.
Sivers said the band that tried this was selling more CDs and gaining more new fans via this technique than when it charged a set price for a CD, so he is encouraging more bands to do this. A similar success story was recounted by Ben Taylor's manager when they tried it.

I have some thoughts about this concept, starting with this question: What happens if every band does this?

1. Will people take a CD from every band and pay less, on average, for each CD? In other words, will they budget an equal amount for every band's CD?

2. Or will they pay different rates to different bands/artists? Will they give $1 to a band they don't like much and $20 to a band that they love? Or will they pay according to need, giving the unknown starving artist more than the well-known rich artist?

3. Or, if fans hear this same pitch at every show, will they sometimes decline to take a CD because, on the one hand, they don't really want to pay for it, but, on the other hand, they don't want to take it for free because that would insult the band?

I found an article by someone pondering a similar dilemma.
The fact that there’s a very good chance that a customer might leave feeling like they either underpaid or overpaid is not really a good sensation to create if you want repeat business. "Pay What You Want (and Maybe Still Feel Like You Got Cheated!)" Everything Must Go, 4/27/09
He gives a very interesting list of reasons why people might feel forced into overpaying for something and then resent being in the situation.

Before I touch upon some practical matters when trying the pay-what-you-want-for-a-CD system, I have a few thoughts on tipping, which is similar.

I've worked for artists who have made more money playing for tips than charging a cover. So the system can work. But there are certain dynamics involved in tipping that musicians must understand before making the transition to pay-what-you-want.

1. Direct acknowledgment from the artists. The whole point of tipping artists is to show your appreciation to them and have them KNOW that you are showing your appreciation. You are saying to them, "I like you." But that gesture is lost if they don't know the tip was from you. So usually the tip is made directly in front of the artist.

2. To have public awareness of your tip. At a lot of shows, you will see "the big tipper." He will wave a $50 bill around a bit so that the artist and the other people in the audience see the big tip. There are, of course, anonymous tippers, but that is less common. Being a big tipper is a status symbol. So there have to be mechanisms to display that.

3. Public pressure. If you want a pay-what-you-want model, it's good for people to see others paying and for people to see who DOESN'T pay. Imagine going to church and not leaving anything in the collection plate. Or going to a restaurant and not leaving a tip. You'll look like a cheapskate. So you have to incorporate some peer pressure into the pay-what-you-want model for it to work.

In other words, when you are playing for tips, you are selling the interaction, not just the entertainment.

Here's someone else explaining the same concept:
Giving to Get is Not a Scaleable Sales Technique – The theory goes that people will be loyal to someone who gives them something for free. In fact, this nugget is a required part of every seminar ever given on “How To Sell Stuff”. Create an obligation that the receiver will feel a moral need to reciprocate. My experience is that this works fine person to person, but it isn’t scaleable. So, yes, some people will buy music or products or consulting services from someone who has given them something of value for free, but not enough people will do it to actually make much money from it, unless there’s a whole army of people out there selling. I think this is because the giving must be accompanied by some kind of personal connection with the giver to make this tactic effective. So, don’t give people free music and expect that they will love you so much that they will buy en masse. "Monetising Music: Simple Rules For Engagement," fyimusic.ca, 9/18/09
There's a lot more to explore on the concept of "gift economies" and I will in future posts. If you can't wait, here's one place to start, although giving away something for free or asking for a donation online has different dynamics than doing it in person. Internet gift economies

Assuming that a band does want to implement a pay-what-you-want system at shows, here are some points to consider:

1. Are people handing cash to an actual person, dropping it in a jar, or sticking it in an envelope? I'm going to guess that you'll get more per fan as the level of interaction increases. If someone is just going to stick some money in anonymously in an envelope, they are likely to pay what they think is fair, but not more than that. If they are sticking it into a tip jar, they'll hide it if they are underpaying and make a big show of it if they are overpaying. And if they have to hand the money to someone who looks at the payment amount, they aren't likely to underpay unless they don't have any money on them and explain that. (Of course, if people want to underpay for CDs, they can learn to go shows with little or no cash so that they never have enough to pay full price.)

2. You're likely to get paid in round numbers. Either people are going to hand you some loose bills, or they are going to hand you a bill and not ask for change. So you are likely to get $5, or $10, or $15, or, if you are lucky, $20, for a CD. People aren't likely to give you $10 and ask for $2 back. My guess is that most people will think in terms of giving you $10 for a CD, while a few will give you $5 or $20.

3. How do you handle the logistics for big shows? What if you are playing in front of 600 people? Should you haul in enough CDs to accommodate everyone? Something to think about. If you want everyone to leave with a CD, you've got to plan accordingly.


Here's a list of articles that make reference to pay-what-you-want experiments. One point that has come up repeatedly is that when a price has already been established (either based on what is usually charged or through a suggested price), people often base how much they give on that amount. In theory, if this sort of experiment becomes so popular that there is no longer a standard price, contributions may go down. In other words, when people think CDs normally sell for $15, they may give $15- $20. But if people begin to think CDs sell for $5 or less, or no longer know what they sell for, how much will they pay?

1. One restaurant experiment.
For two weeks during the end of November and beginning of December in 2007, the regular price of the lunch buffet was removed and customers were asked to pay what they wanted for the buffet. Beverages were sold at regular prices. ... During this period, lunch buffets sold increased 61%, from 157 units to 253 units, while the transaction price under PWYW was 19% lower, from 7.99 euros to 6.44 euros on average. Combined, the result was a 30% increase in revenue. Since lunch buffets are a largely fixed cost offering, the increase in traffic more than offset the decrease in average price paid, yielding an overall profitable promotion. Furthermore, the PWYW promotion was particularly successful at attracting new customers rather than increasing sales to existing customers. ...

In addition, the Persian restaurateur noticed a marked increase in evening traffic. During the evenings, when the restaurant would still list and charge regular prices, revenues almost doubled. As a result, the restaurateur returned to the PWYW price format for the lunch buffet a few months after the experiment ended and decided to keep it for the long run. "If a Business Lets You 'Pay What You Want,' Could It Survive?" The Wiglaf Journal, 6/09
2. Another restaurant using a pay-what-you-want approach.
Out of 55 envelopes, seven are empty. One has a piece of string with beads on it; two others are stuffed with bits of napkins to make it appear that money was included. Some contain as little as 25 cents, but other envelopes hold tens and twenties, and one has $23. The total take for the day is $201.45. This averages out to $3.66 per meal. Brad figures his food cost per meal at around $2. As long as he can cover that, the rest can go back into the business. "SAME Cafe: The restaurant where you pay what you can," Westword, 2/26/09.
3. Another example.
So far, she's not getting rich; in fact, she's not even breaking even. Customers have been leaving an average of about $7 per person in the envelopes, and Potager's food costs are running about $8 per person, she says. "Arlington cafe serves gourmet food and lets customers pay what they want," Dallas Morning News, 3/24/09. 3/24/09.
4. "Pay-what-you-like Restaurants," Budget Travel, 2/29/08.

5. This article has a number of non-restaurant examples. Here are two of them:
Most [Seattle Art Museum]-goers (97.3 percent) pay full admission at $13. The rest pay less. ...

Seattle Repertory implemented a pay-what-you-will night for the usually light Halloween, and it sold out. Like many theaters, it holds one such night per performance, totaling around a half-dozen a year. The minimum cost is $1, but customers pay on average $5. But each show, there's always somebody who is willing to pay the full price of $40, because that's what they decide the show is worth, said Christy Carlson, the ticketing services manager. "Paying what you can for the arts," Seattle Times, 11/30/07/
6. "Wouldn’t It Be Nice to Really Pay What You Wish?" Freakonomics, New York Times, 9/24/09.

Suzanne Lainson
@slainson on Twitter

UPDATE 10/24/09

Here's an experiment involving a game which normally sells for $20.
Since the birthday sale started, about 57 thousand people bought World of Goo off our website. The average price paid for the game was $2.03 a significant percent of which went to PayPal for transaction fees. "Pay-What-You-Want Birthday Sale Results," 2dboy.com, 10/19/09.

5 comments:

  1. Great post, Suzanne. As I mentioned in the paragraph you referenced, I think scalability is still an important consideration here.

    For example, when I originally read Derek's post, my first thought was "that giveaway works because it leverages the personal connection that has been established by attending the show". So, many of those who get the free stuff 'directly' will likely become evangelists of the band, but the difficulty lies in transferring that to the second level of separation (ie. those influenced by those attending the show).

    I still think there will be fairly limited direct monetization of that second level, and that the best way to do so is to empower the tribe to support the artist using tools not limited to money.

    ReplyDelete
  2. Hey Suzanne,
    Thanks for all the helpful thoughts that will lend my brain toward even more thought. I think one important factor here is the connection that must happen before you make the appeal during the concert. If they are truly touched by your music, I think they will understand the concept of allowing the consumer to set the value.

    Someone suggested that I mention what they normally sell for and that gives the group an idea what you normally sell them for. That way if they give $5 they know it's less, but if they give $20, they feel that they are giving extra toward the artist. I instructed my helpers that I would take cash, checks or credit cards and I received all 3.

    ReplyDelete
  3. Thanks for your thoughts.

    I worked with a musician who connected with her show audiences in an amazing fashion. So she had no trouble at all selling CDs for $15. People bought them at that price and had no trouble paying full price. So she hasn't really needed the extra step of offering to give away her CDs as a way to connect with audiences.

    The "pay what you want" model may help bands/artists who don't connect well with audiences to find a way to relate to them. It may not be as necessary for those who already relate to them.

    ReplyDelete
  4. first heard this idea explained at length by dave allen, not derek sivers.

    ReplyDelete
  5. The Ben Taylor link comes from Dave Allen's blog. I was aware of Allen's post from the time he first put it up. But Sivers got hundreds of comments with his post, so that was particularly attention-getting. And Sivers was referencing a comment by Terry McBride, who has also used the concepts with the bands he manages.

    So the concept has been put forth in several different circles, but there hasn't been a lot of discussion of the finer points of doing it. I've found that whenever anything works for a few bands, everyone tries it, and then it tends to lose its effectiveness.

    ReplyDelete