The Control–Effort Trade-Off in Participative Pricing: How Easing Pricing Decisions Enhances Purchase Outcomes
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In the past few decades marketers have begun experimenting with pricing strategies that have consumers decide the final price for a product or service. These pricing strategies are believed to engage consumers, boost sales, enhance brand loyalty, and contribute to a sellers’ overall competitive position. However, in recent years many firms, including Priceline.com, Panera Bread, and the Metropolitan Museum of Art in New York have abandoned their once famous use of participative pricing (i.e., Pay What You Want) and reverted back to fixed prices. In this research, we critically examine participative pricing to understand how and under what conditions it might enhance purchases.
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The Control–Effort Trade-Off in Participative Pricing: How Easing Pricing Decisions Enhances Purchase Outcomes
- 1. The Control–Effort Trade-Off in Participative Pricing How Easing Pricing Decisions Enhances Purchase Outcomes Wang, Beck, Yuan (2021)
- 2. Participative Pricing • A pricing mechanism that gives consumers some or all control (e.g. pay what you want) in determining the price paid Wang, Beck, Yuan (2021) SELLER FIXED PRICE PARTICIPATIVE PRICE BUYER SELLER BUYER SELLER BUYER Pay-what-you-want or Name-your-own-price
- 3. Participative pricing (e.g., “Pay What You Want”) was an exciting new trend in pricing, but many companies who adopted this model have reverted to fixed pricing Wang, Beck, Yuan (2021) The Misplaced Promise of Participative Pricing • Priceline’s 2007 Name-Your-Own- Price campaign with William Shatner • Abandoned PWYW pricing for airfares in 2016 • Panera Bread’s 2008 pay-what- you-want café • Closed its last remaining PWYW restaurant in Boston in 2019
- 4. An Alternative: Pick Your Price • Consumers are able to choose their desired price from a series of options Wang, Beck, Yuan (2021)
- 5. The Control – Effort Framework Wang, Beck, Yuan (2021) Pricing Control: The perceived level of personal influence over the final price paid. Pricing Effort: The feeling of mental exertion associated with price determination Pick Your Price (PYP) enhances feelings of control but does not significantly increase pricing effort.
- 6. Pick-Your-Price (PYP) • Strikes an appealing balance between pricing control and effort. Wang, Beck, Yuan (2021) Fixed Price 22% Discount Price 28% Pick Your Price 34% Pay What You Want 16% Proportion of Units Sold by Pricing Strategy Revenue Generated by Pricing Strategy $32.40 $40.80 $49.20 $23.60 $64.80 $61.20 $73.80 $16.52 $- $20.00 $40.00 $60.00 $80.00 $100.00 $120.00 $140.00 Fixed Price Discount PYP PWYW Profit Cost
- 7. Use PYP with Caution and Careful Consideration • Consumer’s shopping motives may change the effectiveness of each strategy • Save money: PWYW and PYP are both effective • Save time: PWYW is ineffective • The more options provided in a “Pick Your Price” strategy, the more effortful it becomes • Purchase Context • PYP performs as good as PWYW in charity/donation-related purchases but generally better in regular shopping context Wang, Beck, Yuan (2021)