Have you ever purchased something that you felt wasn’t worth what you paid? Don’t you wish you could have been apart of the decision for how much the product or service cost? The pay-what-you-want model (P.W.Y.W.) is something brands have been practicing for years. After all, it sounds like a customer’s dream. They are calling the shots. They can put value on your product or service. Essentially, you are letting them play the name your price game. You will discover just how much are your customers willing to pay.
This concept got me thinking about big companies. What if Starbucks started a pay-what-you-want pricing menu? Do you think customers would pay more or less? My initial reaction is that many would either abuse the system for free drinks or end up paying less than what their actual beverage costs.
Typically at Starbucks you pay an average of $5.00 for coffee. Honestly, that is a lot of money to me, especially if you visit daily. Do I still frequent Starbucks regardless of the price? You bet I do! So if they are running a promotion that allows customers to pay whatever they want for their coffee, I’m not going to pay over $5. However, because I know what my regular drinks generally cost at Starbucks, I might end up feeling guilty when I hand them only a couple dollars. I might not even look them in the eyes. Is guilt a driving factor to the P.W.Y.W. business model? It could be for some.
Let’s say you are given this same opportunity online. You are in the comfort of your own home where you are free from judgment. You don’t have to look someone in the eyes and tell them the price you would like to pay. You can decide without any guilt or concern. Do you still go with a lower price? My guess is yes. At least that’s what I would do.
What about those people who feel pressured and anxious into making a decision? Will they end up not buying? Perhaps they are so conflicted with the price that they may choose to not purchase at all. I think by nature we try to be fair and sometimes generous. At the same time, we don’t want to feel like we are getting sucked into something that will ultimately waste our money.
Everlane’s Radical Transparency
Everlane is one company that offered a pay what you want promotion in an after Christmas sale this past December. Everlane is an online fashion retailer with a unique mission and marketing approach. During their after Christmas sale, Everlane’s website gave customers three different price options on specific products. For example, if you happened to look at a pair of Nubuck Street Shoes, customers could choose to pay $122, $108, or $95. Each price available had a description about how much you were saving. The retail price was also listed on the page but was crossed out. Would you go with the best deal?
Now that Christmas is over, Everlane no longer has the promotion going on. However, what is unique about Everlane is their radical transparency. The company is open with their customers about their pricing and everything that goes into making their products. They believe in empowering their customers with their openness so that they are able to make wise decisions with their purchases.
When you visit their website today and begin shopping, you will quickly learn that they list retail prices on all of their products. This is to help show customers how much they are actually saving when they shop with them. If you click on the traditional retail price (listed under their price), you will see a breakdown of the costs that go into making each product. This includes the cost of materials, hardware, labor, duties, and transportation.
Personally, if you give me options about how much I would be willing to pay versus having me come up with the price, I’m less likely to feel confused or be apprehensive about making a purchase. I don’t know how much it costs in terms of production, overhead costs, marketing, etc. I think the P.W.Y.W. model works better when you give customers’ choices, rather than making them come up with the pricing.
If Starbucks decided to do this for one day, I would definitely participate in their promotion. However, I think they would be more successful if they did something similar to what Everlane did in their after Christmas sale. That way they are still making a profit from their customers. Would it bring in new customers? Probably. Would it bring in only one-time customers? Definitely. Would it create excitement and fun towards their brand? Yes. Are there better promotions for big companies such as Starbucks that they should consider? Absolutely.
Coffee Is On The House!
The P.W.Y.W. model reminded me of when Starbucks had a glitch in their computer system last April. The outage affected over 7,000 stores nationwide. I first discovered the news on Twitter. I heard customers were getting free drinks if they tried to pay with a credit card or with their app. You could still pay with cash, but who has cash these days? I’m not sure of the actual number of people that actually went to Starbucks that evening, but I bet the number spiked dramatically in that time frame. People wanted to get their free beverage from Starbucks. After all, this kind of thing doesn’t happen every day.
Unfortunately, I think some abused the situation. Others were tipping their baristas and thanking them on social media. I know some of our stores in Indiana closed early. I don’t know if this was because they couldn’t give away any more free drinks and food or if corporate had told stores to close early. I’m betting that Starbucks didn’t make much of a profit, if any from this event. What it did do was create more awareness.
Word traveled fast thanks to social media. Twitter blew up with tweets about Starbucks. Customers were excited to get their free drinks. It was word of mouth that had the biggest influence during the outage. It also brought customers into their stores, perhaps even ones that wouldn’t usually. Starbucks wanted to take care of their customers. That is who they are. They knew that the system outage was an inconvenience and they wanted to give back. Because that is what they do.
If I had visited one our stores during (and after) the outage, I wonder what I would have noticed. Would people have thanked their baristas? Would they return the next day and give them money? Or would they just expect the free products? How would people have reacted? I know this wasn’t an example of the P.W.Y.W. model, but it could have been an opportunity for customers to find ways to pay for their products. Some had the chance to contribute when the system failed.
Is the Pay-What-You-Want Model for You?
The truth is, pay-what-you-want pricing doesn’t work for every business. I do believe that the P.W.Y.W. model helps create brand awareness and brand loyalty. It can also increase your revenue and influence. It removes the barrier of entry. Sometimes higher prices can prevent people from purchasing from you in the first place. When you lower that price to zero, those people that were interested before but hesitated because of the price are now more likely to take that first step. I think if you give people the opportunity to contribute and give them control over what they want, they will contribute. By allowing them to choose a fair price for your product and service, you will have a better understanding of how they value your services. Additionally, it is a great way for your business to stand out because this approach is so unique.