An insight into pay-what-you-want pricing

Abstract

Purpose– Extant literature on pricing posits that consumers’ internal reference price (IRP) drives willingness to pay (WTP), when external pricing cues are available. This positive IRP-WTP relationship is further moderated by involvement and price consciousness. The purpose of this paper is to test how the IRP-WTP relationship will be moderated by involvement and price consciousness, albeit in the pay-what-you-want (PWYW) context. In the PWYW setting consumers can pay any amount of money (including nothing) and no external pricing cues are provided.Design/methodology/approach– A survey was engaged to measure the key variables, and the data was analyzed using hierarchical multiple regression with spotlight analyses.Findings– In the normal everyday pricing context, involvement strengthens the IRP-WTP relationship, while price consciousness weakens it. Contrary to this normal pricing wisdom, in the PWYW context, it was found that both involvement and price consciousness weaken the IRP-WTP relationship, thereby driving down consumers’ WTP.Research limitations/implications– Future studies should use experimental design to manipulate some of the independent variables used in the study, focus on the mediating processes that underlie PWYW decision-making and extend the findings in the context of wider demographics.Practical implications– Managers should focus on segmentation, branding and product experiences to ensure higher returns of PWYW businesses.Originality/value– This paper addresses lack of overall research in the PWYW area, and also addresses some key gaps left by extant research of Kimet al.(2009) that was published in theJournal of Marketing.