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.

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. "5 Pay What You Like Restaurants," Secret Food Tours.

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.