Tuesday, November 24, 2009

More Pay-What-You-Want Examples

Since I wrote this, "Letting the Fans Decide What to Pay You," I have run across other examples that share numbers.

The most thorough comes from 2D Boy, a company that offered its The World of Goo game at pay-what-you-want pricing for two weeks. The game normally sells for $20. During the first week of the special pricing, people paid anywhere from $.01 to $50. The vast majority paid only $.01.
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," 2D Boy, 10/19/09.
Click on the link to see detailed graphs and charts about the results.

During the second week, the average price paid went up, perhaps as a result of the company publicizing how little many people paid. There's much more data in the follow-up blog post.

Here's another recent pay-what-you-want program. Gisle Martens Meyer, a Norwegian composer, offered his music this way.
What makes me particularly proud, is the percentage of payments vs downloads.

Here are some stats.

  • 40% of downloaders choose to pay
  • Average payment is 3 USD
  • Most frequent payment is also 3 USD
  • There is a smaller, but very respectable number of high payments (15-20 USD)
  • There is also a good amount of 1 USD payments
  • Downloads are dropping fast without further promotion.
  • "Shul -Download And Purchase Statistics," Ugress 11/5/09.
    An earlier example for pay-what-you-want music produced better results than Meyer received, perhaps because everyone had to pay at least a minimum price.
    The researchers inspected Magnatune between 2003 and 2005. This online-music-shop got a special pricing system, where the customer chooses the final price. Magnatune only sets the range of the price between 5 and 18 dollar and they suggest to pay 8 dollar. By surprise the average price was about 8,20 dollar. That’s 64 percent over the minimum price and even 20 cent more than the suggested price. "The Long Tail of Fans and optional Pricing," Digital Tools, 8/13/09.
    The article goes on to say:
    Key successes for the optional higher prices were the following:

  • Transparent revenue share: 50 percent for Magnatune – 50 percent for the artist at every buy.
  • Buyers convenience: Consumers could stream all content and were not limited to short audio-snippets. This heightened the feeling of having a “fair deal” for the customer.
  • Good paying customers were having the feeling of supporting a “good thing”.
  • Anonymous buyers almost always just payed the minimum price.
  • Experimentation of the preselected price-range should have a huge effect on the customers price-choice.
  • I also found some other data for Magnature, covering November 2003 to November 2004. This article gives quite a bit more data. The results indicated that 56% of the units sold and 54% of the revenue generated came at the $8 price point. The next biggest price point was $10 (14% of units sold and 17% of revenue). The next most popular price point was $5 (14% of units sold and 9% of revenue). There's a chart that shows units sold and total revenue at each dollar level from $5 to $18.
    1) Almost twice as much total revenue comes from people paying $10 (17%) as people paying $5 (9%).

    2) 31% of Magnatune's total revenue comes from people paying more than $8, vs. just 16% of revenue for purchases less than $8. I think this makes a case for accepting the minor reduced revenue from allowing people to go below $8 as those who pay more make up for that loss.

    3) Purchases center around the round numbers of $5, $8 and $10. Evidently, these numbers "feel good" to people. "Pay what you want" results analyzed at Magnatune," Buckman's Magnature Blog, 12/8/04.
    The Radiohead online sale of In Rainbows has been cited many times, though the band has not released its figures. comScore supplied these and maintains they are accurate.
    From October 1-29, 2007

    62% paid nothing
    17% paid between $0.01 - $4.00, 8% of the total sales
    6% paid between $$4.01 - $8.00, 12% of total sales
    12% paid between $8.01 - $12.00, 52% of total sales
    4% paid between $12.01 - $20.00, 27% of total sales

    That worked out to an average of $6.00 per paid download worldwide, ($8.05 US, $4.64 non-US)

    Including those who didn't pay anything but downloaded the album from Radiohead (not counting illegal filesharing), the average was $2.26 worldwide ($3.23 US, $1.68 non-US).
    "For Radiohead Fans, Does 'Free' 'Download' = 'Freeload'?" comScore, 11/5/07.
    Radiohead inspired others to try it. Here's what happened with T-shirts.
    Remember a few weeks ago when I told you that Tasty Tees were making a tee based upon the "pay what you want" ethos behind Radiohead’s latest album, In Rainbows? Well, if you missed it and want one, I’m afraid its tough luck, they’ve all been printed up and shipped out, and the stats are in…

    Average price was $3.37.

    20% paid a penny

    25% paid a $1

    The highest paid was $20

    Frankly, this knocks my faith in humanity a bit, I was expecting more of the tee buying public, but kudos to whoever spent $20 on it, oh, and all those figures exclude the $5 shipping fee, so all-in the average was more like $8.37. "Tasty Tees: Pay What You Want Stats Are In, No Really," hideyourarms.com, 12/04/07.
    And magazines.
    In February, Inc. tested a special offer with 5,000 potential readers: They could sign up for a year's subscription, beginning with the May issue, and set their own rate. "We excluded existing subscribers from the offer and asked folks to pay us upon receipt of their first issue, which included a bill basically saying, 'Now is the time to pay as you wish,' " says Patrick Hainault, Inc.'s director of consumer marketing.

    The result? The offer was a dud. The mailing produced a third fewer new subscribers than the magazine's standard direct-mail piece, says Hainault, who has two theories on why the experiment came up short. First, he thinks the mailing itself did not do a good job of emphasizing the novelty of the pitch. The envelope looked like any other subscription offer. The pay-whatever language was not set off in big lettering. "We didn't give enough real estate to the offer to give it credibility," he says. "A One-Hit Wonder?" Inc., 6/1/08.
    I pulled a few more examples. Here's a paper about cookie sales. The researchers sold cookies pay-what-you-want, either with a $.25 minimum or without any minimum.
    Participants paid more on average for a cookie in the “pay what you want” price scheme (M=$1.17) than in the “pay what you want, minimum 25 cents” price scheme (M=$0.67) ...

    Men paid more on average in both conditions than women ($1.06 for men, $0.59 for women). "Do 'Pay What You Want' Price Schemes Lead to Higher Prices," abbyliebeskind.com, Spring, 2009.
    Here's one nearly ten years old.
    For the last 2 1/2 years, I have been running http://selfpromotion.com/, a URL registration/site promotion resource. SelfPromotion.com basically provides tutorials on proper site promotion methods as well as a sophisticated submission "power tool" that minimizes the labor of submitting urls to large numbers of search engines. While I do make suggestions about appropriate contribution amounts (what I think is a reasonable price), and provide some extra goodies (some cute tools, and keeping all the data they entered online for future use) for those who do contribute a token amount, the choice to pay up and the amount is entirely up to the users of the site. ...

    The results are illuminating; while about 10% of those who create an account on the site pay up, the payment percentage for those users that use the site to do more than submit to the top search engines (which can be done for free at hundreds of places on the net) is approximately 40%. Furthermore, the average "tip" I receive is about $22.50, over twice the amount required to get the extra goodies. Contributions of $50 or more are very common.

    By letting the users set the price, rather than setting it myself, I more than doubled my income. This is because I captured tips both from people who could not afford to pay what I thought was fair, as well as those who would willingly pay more. "Tipping - a method for optimizing compensation for intellectual property," Robert Woodhead, 8/15/00.
    These examples are offered to give you additional data on how pay-what-you-want pricing programs have worked. Relatively few people share their results in great detail, so when I can find such cases, I like to pass them along. If you want to read more about the concept in general, and why it may or may not work well for musicians, check my original post on the subject.

    I will add, however, some additional information about the concept that I just found:
    What factors make the PWYW approach work?

    1. High-fixed costs and low-marginal costs, with available marginal capacity: If additional volume is inexpensive to serve, and you have available capacity (think buffet restaurant, copies of software, or publishing but not technical equipment or professional services), the volume gain increases profitability. If you have fixed capacity or high-marginal costs, you risk replacing a higher-fee customer with a lower one.

    2. Ability to communicate the offer: While very high levels of satisfaction can actually increase price, like the deli results, the power of the pricing approach lies in attracting customers otherwise priced out of the market. ...

    3. Repeat transactions and high levels of satisfaction: Customers are driven by reciprocity and fairness. This approach made the Hare Krishna airport flower campaign successful – individuals were presented with a flower, then asked to reciprocate with any amount of money they chose. Customers want to appear fair and avoid embarrassment. If you offer a satisfactory, high-value solution, all research on PWYW models show that customers will offer a non-zero fee they believe is fair. "PWYW: A New Pricing Model," Revenue Management Forum, 2/19/09.
    Suzanne Lainson
    @slainson on Twitter

    UPDATE 1/8/10
    Another example:
    I tried something new this time as far as CD sales go: I offered them on a “pay-what-you-can” basis. Throughout the show I announced that I wanted everyone there to leave with a CD, no matter what it took. I had a “suggested donation” price of $15, but told the crowd they could pay $10, $5, $2…or just take one for free. For some reason not everyone took me up on my offer. But in comparison to my last CD Release Party, where all CDs were priced at $10, I sold twice as many this time, and made more than twice as much money. 50% of the sales were for the suggested price of $15, 42% paid less, and 8% paid more. "Thanks to All Who Helped Make The JPQ CD Release Party a HUGE Success!" One Working Musician, 10/27/09.
    UPDATE 5/19/10
    The pilot restaurant is run by a nonprofit foundation. If it can sustain itself financially, Panera will expand the model around the country within months. It all depends on whether customers will abide by the motto that hangs above the deli counter: "Take what you need, leave your fair share."

    Panera hopes to open a similar location in every community where it operates. "New Panera location says pay what you want," MSNBC, 5/18/10.
    UPDATE 5/21/10
    Not all restaurants using this concept find that it works.
    The phone at the Java Street Cafe in Kettering, Ohio, which last year embraced the pay-what-you-want strategy, has been disconnected, and it appears to have closed.

    And Tierra Sana in Queens folded — though it offered customers a pay-what-you-want option only one day a week.

    The Terra Bite Lounge, a cafe in Kirkland, Wash., operated as a pay-what-you-want restaurant for a year or so. But Ervin Peretz, its owner and a lead technical designer at Google, said the cafe now charges for its meals. He said he dropped the model in part because of issues particular to its location — it is in a neighborhood popular with teenagers.

    Founded in 2003, One World Everybody Eats in Salt Lake City is one of the oldest pay-what-you-want restaurants, and like Mr. Peretz, its operators have found the concept a bit challenging. It is now owned by a nonprofit group and suggests customers pay a small amount, say, $4 for a meat or fish entree.

    “I used to let people put their money in a basket and make their own change, but then I went to a lockbox,” said Denise Cerreta, the cafe’s founder. “You learn how to cut down on the people who will take advantage of the concept.” "Another Restaurant Tries Pay-What-You-Want," New York Times, 5/20/10.

    2 comments:

    1. Do these example take into account multiple downloads from the same persons?

      Because when I see one of these "Pay What You Want" deals, I normally download for free first and then go back and download again + pay what I think is fair (Depending on how well I liked the album/how many songs I liked)

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    2. I only know the data that people publish. These days a lot of artists offer free music in exchange for an email address, so they are collecting user information.

      Some of these examples mention anonymous users, so presumably in those cases they aren't asking for information, though they should be able to at least track IP addresses.

      There's so little widely-shared information on pay-what-you-want pricing that I don't think any of us has enough info to know what might be the benchmarks.

      ReplyDelete