appazoogle

Dispatches from the Digital Revolution

Can the pay-what-you-want pricing model work for publishing?

Source: Flickr.com (401k)

While the pay-what-you-want business model has been around for quite some time now, the pricing structure seems to have really taken off after 2007, when Radiohead sold a digital download of their seventh album, In Rainbows, for whatever sum their fans wanted to pay. Since then, the pay-what-you-want pricing model has been cropping up everywhere, from video game developers, to small, privately owned restaurants, to major businesses such as Panera in 2010.

And now, the trend seems to be picking up some steam in the publishing industry.

Before we begin talking about paying what we want for books, let’s begin with a brief overview of how the model actually works. Under this pricing strategy, consumers can pay any price they think the item deserves. A business can choose to let things play out how they will, which means that consumers may in fact choose to obtain the merchandise for free. To prevent too many freebies from going out the door (or across the Web), a company may choose to set a “floor” price, post an average price based on past purchases, or give a suggested value to help influence the buyer’s decision.

Pay-what-you-want-pricing in action

But there is another fascinating component to the PWYW pricing structure, as noted in a field experiment by Ayelet Gneezy, assistant professor of marketing at the University of California, San Diego. In this study, Gneezy observed 113,047 individuals at a theme park, who were given different pricing models for souvenir photos from a roller coaster. Some customers were given traditional fixed pricing, while others were given the option to pay what they wanted, with no floor. However, there was another twist. Half of the customers were told that 50 percent of the revenue went to charity. Here is part of the abstract that describes the results:

At a standard fixed price, the charitable component only slightly increased demand, as similar studies have also found. However, when participants could pay what they wanted, the same charitable component created a treatment that was substantially more profitable. Switching from corporate social responsibility to what we term shared social responsibility works in part because customized contributions allow customers to directly express social welfare concerns through the purchasing of material goods.

In other words? Both profit and charitable donations were significantly higher when consumers were offered the opportunity to set their own prices. The term Gneezy et al. selected, shared social responsibility, indicates that consumers are likely to spend more when they have a voice in where their money goes. (By the way, the link to the study posted above may require a subscription to access. Here is a link to another article that does a great job synthesizing the results of the study in case you wanted to read further but couldn’t access the original link.)

So I think this is one component we will be seeing over and over again where PWYW strategies are in play.

Source: Humblebundle.com

The PWYW pricing strategy has also been popular in the video game industry, the most successful of which is attributed to HumbleBundle,where gamers can set their own price for a bundle of indie-developed games (and there is a charitable component at work here, too). Under this pricing model, consumers can choose exactly how their purchase is distributed.

That said, this PWYW pricing strategy is a delicate one, and it isn’t always going to work. Techdirt analyzes the results from another game developer who adopted this strategy (Joost “Oogst” van Donge creator of the game Proun). The game developer did not enforce a pricing floor, and he found that the vast majority of gamers downloaded the game for free. His interpretation is that a free download does not require the extra steps of inputting credit card information, so gamers were more likely to download for free rather than pay. As the Techdirt article here notes:

Ask any gamer and they will most likely tell you, they simply want to get, install and start playing the game as soon as possible. Anything that slows that process down is a no go.

Although many people chose not to pay for the game, the developer did gain exposure, which certainly has its own currency in the discoverability challenge. However, were he to do it again, he would include a minimum price.

All important things to consider if you’re taking on the PWYW model.

But what does this have to do with publishing?

A bit of a long-winded introduction, I know, but I think it’s important to understand how all of the PWYW intricacies work. Especially because we may be seeing more of them at play in publishing.

Source: Storybundle.com

Former Lifehacker editor, Jason Chen, just announced the launch of StoryBundle, which will follow a similar model to HumbleBumble. The new company will bundle ebooks from indie authors, and readers can choose how much of their purchase will go to charity, and how much will go to the authors. It is an interesting marketing strategy. Note the language at the bottom of the screen:

Authors: Tired of publishers taking 80 or 90% of your book sales for doing…what, exactly?

Looks like Amazon just got competition in the indie ebook market.

I can see this sort of structure working for a very niche audience, perhaps for the type of books that might not make sense to go through a large publisher.

I should also point out that the PWYW pricing model is not new to publishing, nor does it necessarily need to exclude publishers.

Take Bookstep, for example, an e-textbook rental service that uses a variation of the PWYW structure. Students can choose to access textbooks on-demand, and only pay for what they need, prepay for the term, or prepay for an annual subscription. A more thorough explanation of how it works can be found here.

It’s an interesting strategy, and again, I can see the PWYW pricing working well in very specific, niche applications. However, it’s also a bit of a gamble, and as we saw with Stephen King’s pricing experiment, it doesn’t always work.

But I’m curious to find out what you think. As writers, would you be comfortable letting your readers set their own prices for your work? As publishers, would you be willing to test out a rental on-demand model like Bookstep?

One comment on “Can the pay-what-you-want pricing model work for publishing?

  1. Pingback: Bundles of bundles: Snug Nugget, StoryBundle, and ebooks, oh my! « appazoogle

Comments are closed.

Information

This entry was posted on February 20, 2012 by in Business and tagged , .

Follow Appazoogle on Twitter

RSS RSS Feed

  • An error has occurred; the feed is probably down. Try again later.

Enter your email address to follow this blog and receive notifications of new posts by email.

%d bloggers like this: