Consumer response to design variations in pay-what-you-want pricing
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Recent literature has identified consumers’ fairness and image concerns as the primary drivers of payments under pay-what-you-want (PWYW) pricing. Consequently, managers have employed a variety of design variations to invoke/alleviate these concerns to attract more customers and increase payment magnitudes. We develop a theoretical approach that combines both prosocial and self-interested motives to examine consumers’ four possible responses to design variations in PWYW exchange: (1) opt-out, (2) free-ride, (3) default to recommendation, or (4) other payment. We confirm model predictions using an empirical approach that jointly estimates the multipartite customer response. We report findings pertaining to four managerially controllable variables namely, ‘payment visibility’, ‘information on payment recipients’, ‘timing of payment’, and ‘explicit price recommendations’ using both secondary data and controlled experiments. We show that design variations have a heterogeneous effect on different types of consumer responses leading to countervailing effects on revenues. We derive several actionable managerial recommendations.
KeywordsPay-what-you-want pricing Pricing design Price recommendations Anonymity Hurdle models
The empirical section of the paper is partly based on one of the essays of the first author’s dissertation. Fernando Machado acknowledges the support from FCT – Portuguese Foundation of Science and Technology for the project UID/GES/00407/2013. The authors thank Rik Pieters, Kalpesh Desai, Jeff Johnson, three anonymous reviewers, and the editors for their helpful comments and suggestions. The authors are grateful to their friend and collaborator late Rajiv K. Sinha for his guidance at the early stages of this research.
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