The challenges or weaknesses that this strategy faces From Pay what you want - Wikipedia:
Pay what you want (or PWYW, also referred to as value-for-value model is a pricing strategy where buyers pay their desired amount for a given commodity
- "Pay-What-You-Want" - Uri Gneezy - YouTube
- (Full Length) - How to Get People to Pay What They Want...and Still Pay Something - YouTube
show interesting experiments on this. The overall results are:
- Profit is slightly more than the fixed price strategy
- Lots of people pay nothing, but people who are willingness to pay pay more to average out the free-riders
However, they don't discuss why this strategy is not popular, especially when profit maximization is not the goal. The closest explanation I can find is from Raju, Jagmohan; Raju, Jagmohan Singh; Zhang, Z. John (2010). Smart Pricing: How Google, Priceline, and Leading Businesses Use Pricing Innovation for Profitability. Wharton School Pub:
Although music is a very risky business, we found that Radiohead’s In Rainbows campaign shares the same five key qualities as any successful “pay as you wish” pricing program:
- A product with a low marginal cost
- A fair-minded customer
- A product that can be sold credibly at a wide range of prices
- A strong relationship between buyer and seller
- A very competitive marketplace
But in my experience there are many products that fall into this category, and profit maximization is not the goal, yet the strategy is still not used. Examples of these are public good, like museums or national parks. In fact they face the tragedy of the commons.
If we just limit to private good, one hypothesis for the fail of this is that this pricing strategy signals that the seller is not confident on the product value, so the customers will expect that the product will be error-prone. They don't pay more not because they want to avoid loss aversion, but because they actually perceive its value is low. (Contrary to the value-based pricing strategy, which the price can be used to eliminate potential customers who are driven only by price and attract new value-oriented customers from competitors.)
My questions are:
- Is there any statistic on the successful rates of this strategy?
- What stops it from being more popular? What stops successful vendors continue using it?
- Is there any evidence or counter-evidence on that hypothesis?
I hope putting those questions in one post makes more sense than ask them individually.
Related question: "Successful projects share the same 5 keys qualities. In each quality our project achieves over average score". What can we conclude about this? on Cross Validated SE