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Pay What You Want

1.0 Introduction

Over the years, various firms have attempted different marketing strategies with the aim of competitive gain advantage over their rivals. Most of them have been using product and services to policies and conquered the markets. In the recent, most of the companies have tried to exploit pricing strategies instead. This comes at the time that when firm realizes that giving customer’s freedom to choose what they would like to pay for their product and services influence their buying behavior. Through this, they have developed a unique pricing strategy of PWYW which is distinct from other pricing mechanisms. In the past consumer, used to bid for product and services but they were uncertain about the acceptability and product features. The introduction of “Pay What You Want” has fully transferred the pricing decision to the consumers. In this case, customers have maximum control over what they pay for the product and services.

The idea was used to public goods including the entry tickets for museum and pars, club membership, drives for public TV membership. Moreover, the idea has taken a different direction to the profit-making organization. It has gained attention among private goods such as Music, restaurant and Videos in the context of pricing. “Pay What You Want” idea appears to suggest though the growing number of a real-life situation that it is going to become a profitable pricing strategy unlike what economic models and the common sense forecast (Kunter, 2357).

The introduction of ‘’Pay what you want’’ Price strategies have added an exciting issue to explain why consumers could significantly pay for the value of something they could easily get for free. Many still wonder why people still pay a premium for the ethically certified products. Even though various theories have provided explanations on reasons behind the matter, it is still unclear why customers do so. Also, these theories have failed to explain the decision concerning whether and how much to for any profit-making organization for private goods. This has prompted to research matter to determine its viability (Chao, 176).

2.0 Theory and hypothesis
a) Hypothesis
This research is based on the following hypothesis under PWYW condition:
H1: price paid in Face-face interaction is greater than Zero.
H2: fairness has a positive influence on final prices.
H3: Altruism has a positive impact on prices offered by consumers
H4: Satisfaction has a positive effect on the price offered by users
H5: Loyalty has a has a positive effect on the price offered by users
b) Theories
Kim, Natter, and Spann (2009, 2010) conducted some of the early studies on this pricing mechanism. Based on three field studies carried out in Germany in 2006-2007, they found that PWYW could generate prices well above zero and even increase sales. Also, the authors found a significant link between voluntary payments by consumers and certain individual variables such as income, satisfaction and a psychometric measure of the perceived fairness of the price paid. The theoretical work also focused on the profitability of PWYW prices with specific delivery conditions. In particular, it has been argued that PWYW tends to be more profitable when suppliers have low marginal costs (Raju and Zhang 2010) and when costs are high (Fernandez and Nahata 2010). Gneezy et al. (2010) analyzed in an experimental way how the price policy associated with the sale of souvenir photos in a large theme park interacts with a charitable contribution. Their results showed that PWYW’s prices almost tripled their incomes relative to traditionally fixed prices when consumers said that half of these revenues were donated to charities, but that only had a positive impact on the lowest incomes. More recently, Gneezy et al. (2012) found experimental tests in which, according to PWYW, some people engaged in voluntary exclusion behavior motivated by a concern for identity and self-image. In other words, when people think the “fair” price is high, they tend to pay less than that price and respond entirely by giving up the opportunity to buy (instead of looking for and spending very little.

In “Pay What You Want” setting, customers have maximum control of prices they pay, and thus they can choose to pay any amount for the goods or services. Theoretically, the wide- range of probable prices is fundamentally limitless because there is no threshold price. The economically cautious customers who normally maximizes the value of a single purchase can take advantage of the mechanism of paying a zero price. Through our study, we realize that the platform works effectively in both online and offline depending on successful implementations of PWYW. According to the owner of Wiener Deewan restaurant, with offers PWYW terms on a meal, subscriber prices are an example of typical behavior ranging from $0 to $20, with an average price of 7.49 €. Consumer motivation differs from the neoclassical economic hypothesis approach that users maximize their utilities. Therefore, other influences must play a significant role in determining “Pay What You Want” ‘ prices. Through this, we go to determine the reason behind customers paying favorable prices at PWYW mechanism and develop models expounding the prices paid to firms operating PWYW.

Although most economic models are based on the assumption that self-interest determines the behavior of all individuals (FehrandSchmidt2006), many studies suggest that people are concerned about the well-being of others or the fact that they are kind or just. (Bolton 1991, Gundlach and Murphy 1993, Rabin 1993, Fehrand Schmidt 1999, Thaler 1985, Kahneman et al. 1986). Although altruistic motives may be the source of these preferences, they are not selfish in the context of contributions to public goods. However, they are unlikely to be an important driver of consumer choice in PWYW market transactions. This view is empirically confirmed by the results of Kim et al. (2009), who found no significant relationship between altruism and the prices paid in PWYW.

On the other hand, equity participation can be a determining factor in the profitability of PWYW’s prices. Marketing and economic studies have shown that consumers’ judgment of price independence has a considerable influence on consumer behavior (Thaler 1985, Xia, Monroe and Coxi 2004, Boltonn, Warlop and Alba 2003, Boltonn and Limón 1999). On the other hand, recent data from PWYW’s empirical price studies suggest that consumers are trying to pay “seemingly fair” prices because of fairness (Kim et al., 2009, Gneezy et al. , 2012). Therefore, our model considers equity as one of the key drivers of PWYW’s behavioral price success. In particular, we rely on the fundamental work of Fehr and Smith (1999), who see justice as an “egoistic dislike of inequality.” In other words: “People are not interested in inequality, among others, but only in the correction of their means of payment about the payment of others” (Fehrand Schmidt 1999: 819).

The actions of individuals are often determined by how they are perceived by others and by their concern about how their decisions affect the behavior of others (Ariely et al., 2009, Altman et al., 1996). According to the previous literature on economics and the biology of evolution, we assume this type of behavioral factors under the concept of reciprocity. In particular, we consider two types of reciprocity. The first is a type of widely documented behavior called “mutual altruism” (Fehr and Fischbacher 2003). This can be described as “the exchange of altruistic acts between unrelated persons and relatives” (Packer, 1977: 441). For example, studies have shown that smiling girls tend to be less friendly (Tiddand Lochard, 1978). Similarly, the use of free samples has been shown to be a particularly effective sales technique (Cialdini 1993).

According to the social relations theory, Heyman and Ariely (2004) outline two kinds of exchange relations: money market relations and social market relations. The money market relations, in this case, is the interchange between two or more parties governed by the utilization of significant worth or quantity (for example, the price of a product). On the other hand, social market relations are described by a lack of payment and trading partners in respect to the norms of social change (rules of reciprocity, rules of cooperation and rules of distribution), while commercial relations refer to the rules of the market. According to (Shampanier, Mazar and Ariely 2007), Pay what you want can dissolve the general relationship between the seller and the buyer in the money market and give the buyer the total price. To the extent that consumers can offer any price, even zero, correlation is not governed by the rules of the changing market rules of social change that affect the behavior of the buyer (Østerhus 1997). This implies distribution rules that imply that individuals aspire to an equitable distribution of resources and that they are particularly resilient in autonomous people (Elster, 1989). The violation of these exchange rules in the social context in the case of Pay what you want does not matter; it can lead to fears and social disapproval of others. Therefore, the benefits of a missing payment must outweigh the expected fears and the fear of disregarding social norms. According to Kahneman, Knetsch, and Thaler (1986), customers under normal circumstances are more willing to suffer a loss than to receive inequality in any situation. Lynn (1990) further explains why consumers can pay more than zero. Discover that the restaurant’s customers have decided to pay more than necessary for their already used tickets. Lynn concludes that some people can use pricing as a way to manage emotions to avoid being poor or cheaper. Because our research has been found in a democratic society, we expect many users to respect social principles, and we do not want to look like a cheap-fashioned co-operation (Kim, 420).

3.0 Data collection and analysis

In our study, we performed three studies with goods in services industries, i.e., restaurant, cinema, and delicatessen. Throughout our research, we aimed at determining the impact of PWYW on the sales and revenue of the firms. We conduct an experiment at three different fields, evaluate and determine the impact of the price strategy at hand.

Study 1: buffet meal at a restaurant

The experiment was conducted in a Persian restaurant with accommodation of 60 guests for eight weeks. In the first two weeks, the firm offers buffer lunch under a PWYW mechanism which originally cost $7.99 which was removed. The whole observation lasted for six weeks, and we collect daily sales data. The PWYW offer of buffer lunch was advertised within the restaurant and in the city using fliers. During the time of offer, 253 customers place their orders for the buffer. When these customers asked for the bill, the waiter only tells them to pay what they want for the buffer. To test the customer behavior on the PWYW, customers who purchase the buffer were surveyed and asked some of the queries to determine their assessment on fairness, altruism, and loyalty, the consciousness of price and level of satisfaction.

Study 2: Movie Screenings at a Cinema

This experiment was conducted in a Cinema in a small town. The firm has eight theatres with a capacity of 100 to 350. The Cinema executives decided to offer the tickets under PWYW which originally cost ranging from $ 4.00 to $ 4.5. The offer lasted for three days, and we collected daily sales data. Also, we analyze the last three months of sales data.

No advertisement was conducted for the offer but only posted was hung in the entrance of the firm and inside the theater. Normally, people pay before they enter the theater, but when they inquire for the bill, the cashier tells them to pay what they want. Unlike the first study, the usual prices were accessible customers. 247 customer brought tickets under offer, and we subject them to survey to get their views. We asked this customer to state the price they pay for each ticket, and we recorded for each customer.

Study 3: hot beverages at a delicatessen

Lastly, we conducted our experiment in a delicatessen in a small-medium town near a metropolitan area — the firm stocks various items including the chocolate, Antipasti sandwiches and hot and cold beverages with an eating space capacity of 12- 22 customers. The experiment lasted for eight weeks, and we undertake our observation and recording sale data. In the first two weeks, the company offered the beverage (hot and cold) for special promotion of pay what you want to pay.

Poster inside the shop and at the entrance was used to highlight the offer. During this offer, 814 cups of hot and cold beverage were sold. The data o the customers who brought was identified, and 271 was subjected to survey.

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