No doubt you’ve noticed it too: Pay-what-you-want (PWYW) pricing initiatives are popping up more and more.
The past years have seen the rise of theatres, museums, zoos and other ticketing businesses letting customers pay as they want. For some companies there could be philanthropic reasons behind their choice to adopt this pricing model, but experience shows us that pay-what-you-want pricing can also lead to great positive outcomes from a business perspective.
That’s why we’ve decided to break down for you the what & why of PWYW pricing.
What is PWYW pricing?
Pay-what-you-want pricing is a simple practice. You offer a good-quality product or service to customers, you let them experience it, and then you give them complete freedom to decide how much to pay for it. Sometimes a floor price may be established or a reference price may be indicated. But generally, the following rule counts:
“Pay what you want to, and only if you feel to”.
In other words, PWYW is a customer-centric form of participative pricing where a buyer has full control over the price setting. He can choose any price above or equal to zero, and the seller must accept it.
This pricing model has long distinguished street performers and restaurants, but nowadays more and more established businesses operating in the ticketing world are giving it a try.
However, for most companies, PWYW pricing is not a strategy used in the long-term to succeed in the marketplace as it can lead to quite unpredictable outcomes. Usually, it’s adopted in the short-term for very specific reasons and occasions, which can include raising money for a charity event, filling empty capacity at the last minute or carrying out a marketing initiative.
But, as always, there are some exceptions. One of them is Der Wiener Deewan, a famous Pakistani restaurant in Vienna which has successfully operated PWYW pricing combined with an all-you-can-eat format for over a decade.
A second exception is represented by the Metropolitan Museum of Art (colloquially known as “the Met”) in New York, which has relied exclusively on a pay-as-you-want system for nearly 50 years. Only recently has the museum restricted this practice to NY residents and students from New Jersey and Connecticut for the first time.
At this point, one question arises: why do businesses choose pay-what-you-want pricing since it sounds like a risky strategy to adopt?
Why to choose PWYW pricing?
There are three main reasons why to choose this pricing strategy:
1) It allows to capture and understand customers’ willingness-to-pay
Think about how much you would be willing to pay maximally to see the final match of your favourite football team. For some, the answer could be €30. For others, it could be €50. A football club that prices its home game tickets at €40 may be losing some visitors (those willing to pay only €30) and also fail to capture the full value of other visitors (those willing to pay up to €50).
By letting people pay as they wish, football clubs in this case could successfully tap into both types of fans.
On a more general level, this means that pay-what-you-want pricing allows companies to capture most of what a customer is willing to pay for their offer.
Additionally, it makes it possible to gain a deeper understanding of the willingness-to-pay of each customer segment. This can be turned into actionable insights when setting a long-term pricing strategy outside of a PWYW initiative.
2) It can lead to increased new visitor attendance
This is another good reason why to choose PWYW pricing. Let’s take as an example the Berliner Ensemble, a theatre company based in Germany’s capital city. To inaugurate the opening of their new venue “Neues Haus” on September 20th, they decided to opt for a pay-what-you-want pricing initiative for seven theatre nights. Visitors were invited to enjoy a stage play and choose what they wished to pay based on how much they valued the experience.
What was the outcome of this PWYW initiative? On average, spectators paid €9 — much less than what they would normally pay for a ticket. Indeed, the regular price at the new venue would usually range between €13 and €29, with reduced tickets costing €9.
However, this strategy was able to generate an increase in demand and attract more new visitors to the theatre. Thanks to pay-what-you-want -pricing, around one in four spectators went to the Berliner Ensemble for the very first time.
This shows that PWYW can encourage people to consider a product, service or event that they would normally ignore in case of a fixed-price.
3) It can generate more revenue
In some cases, the increased demand produced by PWYW pricing can generate more revenue. This is what happened to the Allwetterzoo Münster in Germany. The zoo decided to adopt pay-what-you-want pricing for the fifth time as part of a marketing initiative, from December 15th to January 6th 2019.
What were the results? A total number of 84.566 people visited the zoo, compared to 33.335 in the same period in 2017/18. This means almost three times more. The most popular day was December 30th, which registered 10.500 guests. But many visitors kept coming till the very last weekend of this marketing initiative. The boost in demand increased sales and generated more than double total revenue in comparison to a year without PWYW.
In this case, pay-what-you-want pricing proved that it can be a true economic success.
So, what can you learn here as ticketing professionals? There are four key takeaways:
1) PWYW pricing works — if implemented wisely and correctly. However, it must be used with caution.
2) Longer-term pay-what-you-want pricing strategies can be difficult to sustain due to partially unpredictable outcomes.
3) Nevertheless, PWYW on a short-term basis can be a successful tactic that yields several positive results for ticketing businesses.
4) Finally, this pricing strategy has some similarities with dynamic pricing. Both strategies capture customers’ willingness-to-pay, stimulate demand and can lead to a revenue uplift. However, the first one is based on customer’s perceived value of the product and the second one on sophisticated historic sales data analysis and demand prediction.