The pay-as-you-wish (PAYW) model in which the customer chooses how much to pay for a product, has been experimented with across different industries with mixed results. What are some of the possible enablers for a sustainable PAYW business model?
Pay-As-You-Wish (PAYW) model shifts responsibility of setting prices to customers, allowing them to decide the price they are willing to pay for a product.
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While traditional business models typically assign the responsibility of setting prices to the seller, who strives to balance internal costs with the customer's willingness to pay, the Pay-As-You-Wish (PAYW) model shifts this responsibility to customers, allowing them to decide the price they are willing to pay for a product. This unique pricing strategy offers both opportunities and risks. Typically, the PAYW model has been used in contexts such as charitable donations, short-term promotional campaigns, or to address temporary excess capacity. We identify and discuss the important factors driving the adoption of the PAYW business model.
One of the most popular PAYW strategies was adopted by the music band Radiohead for their album "In Rainbows" by making it available for download on their website, letting their fans decide how much they wanted to pay. The strategy proved successful financially, exceeding typical earnings from traditional record label sales, generating sufficient buzz, and boosting their publicity.
In the case of digital goods (in this case, digital albums), the marginal cost of production is negligible compared to the initial fixed cost of developing the first digital product. The initial cost of producing the music would be a one-time investment, and each additional download would cost virtually nothing as the distribution of the album happened over the Internet compared to physical distribution, which would incur huge costs. The main challenge, then, is to ensure enough people buy and provide fair value for the product to make it sustainable. In this case, the band's huge popularity played a key role, leading to significant downloads and generating revenues. The deployment of the pay-as-you-wish pricing strategy seemed particularly attractive for the fans and music lovers who could get access to the copy at a price they wanted to pay.
While the above case study showcases a success story of the Pay-As-You-Wish model used for short-term purposes such as promotional campaigns, there are also examples of its long-term application across industries, with varying outcomes. We turn our attention to the restaurant business, where the PAYW model has been adopted with variable outcomes. We look at two mini-cases and delineate key factors behind the success and failure of such business initiatives.
Panera Bread is a well-known bakery-cafe chain with several locations across the United States and Canada. Panera Cares cafés were launched in 2010 as the non-profit division of Panera Bread. The main objective of these "community cafes" was to address the issue of food security where visitors could eat and pay either "suggested donations" on the menu, more than the suggested donations, or pay nothing at all. In other words, the aim was to create a space for dining with dignity for those who couldn't afford it. Those who couldn't afford to pay were encouraged to volunteer at the café for work in return for a meal.
[This article has been published with permission from IIM Bangalore. www.iimb.ac.in Views expressed are personal.]